The wave of cryptocurrencies initiated by Bitcoin has been through its own ebb and flow. Nevertheless, the trend has been upward and this is reflective of their wider acceptance and growing user base. Today, some of the biggest technology companies and banks are experimenting with and investing in virtual currencies such as Bitcoin, Ethereum, and Ripple. Even governments and regulators around the world are endorsing some of them, especially Bitcoin. With more and more people joining the bandwagon, cryptocurrencies will have a pivotal role to play in the future. Keeping this idea as the backdrop, several innovative financial products woven around cryptocurrencies are being launched, the most recent one being the Ethereum IRA.
A first of its kind, the Ethereum IRA comes from the stable of BitcoinIRA.com, a financial conduit that pioneered the deployment of Bitcoin as a retirement tool. Their product ‘Bitcoin IRA’ was launched around a year back in June 2016 and ever since, it has garnered some rave reviews. The products offered by BitcoinIRA are a unique alternative to traditional IRAs for investors looking at diversifying their portfolio beyond conventional asset classes. (Related reading, see: How To Add Bitcoins To Your Retirement Account)
Ethereum, launched in 2015, is a decentralized software platform that enables Smart Contracts and Distributed Applications (ĐApps) to be built and run without any downtime, fraud, control or interference from a third party. The applications on Ethereum are run on its platform-specific cryptographic token, ether, which acts like a vehicle for moving around on the Ethereum platform, and is sought by mostly developers looking to develop and run applications within. During 2014, Ethereum had launched a pre-sale for ether, which had received an overwhelming response. According to Ethereum, ether can be used to “codify, decentralize, secure and trade just about anything.”
Following the attack on the DAO in 2016, Ethereum was split into Ethereum (ETH) and Ethereum Classic (ETC). Ethereum (ETH) has a market capitalization of $4.4 billion*, second after Bitcoin among all cryptocurrencies.
One of the big projects around Ethereum (ETH) is Microsoft’s partnership with ConsenSys, which offers “Ethereum Blockchain as a Service (EBaaS) on Microsoft Azure so Enterprise clients and developers can have a single click cloud-based blockchain developer environment.”
During 2017, Ethereum (ETH) made a big move with the establishment of Enterprise Ethereum Alliance, which focuses on building and promoting the best practices and standards that facilitate adoption of the Ethereum protocol for enterprises. Some of the biggest brands from banking, insurance, technology and consultancy are a part of Enterprise Ethereum; some of them are Morgan Chase & Co., Bank of New York Mellon Corporation, Microsoft Corporation, ING, UBS, Wipro, and British Petroleum, Santander and Credit Suisse. (Related reading, see: How Do Bitcoin Investors Combat Price Volatility?)
The process to add Ethereum to one’s self-directed IRA is similar to that of Bitcoin IRA. It’s easy and involves opening of a self-directed IRA through a secure e-sign application and then funding it through a rollover or transfer, before completing with an allocation order.
The regulatory structure followed for regular IRAs will hold good for Ethereum IRA. This means that one’s funds are eligible for tax incentives but they cannot be accessed until one is 59½ years old, and if accessed before that, there is a penalty involved. BitcoinIRA charges a nominal upfront fee without any additional recurring charges, other than a small annual maintenance sum paid to the custodian.
Brave New Coin price data will be used as a reference rate for Ethereum IRA while Genesis Global Trading, Inc. will handle liquidity; storage of investor funds will be managed in collaboration with BitGo’s multi-signature wallet. (Related reading, see: Top Alternative Investments for Retirement)
The Bottom Line
The unique properties and the present progress around virtual currencies are solidifying their future. While challenges remain, calculated risks can result in sweet rewards for investors in the long term. However, it’s imperative to understand the product thoroughly before plunging; as Warren Buffet rightly says, “Risk comes from not knowing what you’re doing.”
*Market Capitalisation of ETH as on April 18, 2017
The author has no position in any stocks mentioned. Investors should consider the above information not as a de facto recommendation, but as an idea for further consideration.